Survival of the Directly Connected

The Internet's geography will boldly change in the next two years, and nowhere are the stakes higher than right here in Washington

Jan 26, 1995

Think of the Internet as the place where all the hype about highways, convergence, and computing speed will come together in the next year, producing the rough equivalent of a Darwinian evolution in a fraction of the calendar time.

Yeah, sure, predictions, predictions. But industry alliances, maneuvers and just plain growth over the last few months are propelling the Internet access contest to an end game - nationally and here in the Washington Metro area, probably the country's Internet capital.

The Internet access business already has moved from the heady atmosphere of frenetic little startups with cables plugged into opposing walls to the kind of corporate positioning and horse-backing endemic to the telecommunications and entertainment industries. Microsoft's recent alliance with Falls Church, Va.-based UUNET began the evolution, as the Redmond, Wash.-based software giant got a piece of a certified network backbone - UUNET's 25-city Alternet. Bill Gates' empire will bankroll 8-year-old UUNET's grasp for 75 more sites, establishing what the industry calls points-of-presence, direct Internet connections not subject to the whims of phone companies such as Bell Atlantic and Sprint, which own the lines smaller access providers, in effect, resell.

The evolution will get kicked into overdrive sometime this fall, with Microsoft again managing the gene pool. It plans an online service called the Microsoft Network, geared to the consumer market, with UUNET concentrating on the business end. This fall, the company is supposed to ship Windows 95 - "long-awaited" is too much of a clich? in this case - bundled with appropriate gewgaws to make Internet connection relatively simple. Software that's supposed to make programming used to building interactive displays on the World Wide Web as easy as programming command keys in Microsoft Word is part of the deal, too.

The Web, a network where corporations such as Sun Microsystems and minor merchants of men's underwear are setting up interactive services to distribute information, and, of course, sell products already is booming and blooming. Amazing numbers are married to the Web, in the thousands per day for "hits" on a particular interactive home page - though by now, everyone knows the perils of trying to quantify the Internet. Even so, interest in the Web has begun to drive Internet technology. Its flashy graphics and hefty content demand interfaces that bypass UNIX tedium and network connections that can handle their daunting size.

Only now are businesses and consumers beginning to demand software and connections that can browse the Web and make use of its content. Naturally, putting those kinds of resources right in the hands of millions of Windows users will add a new dimension to the content of the Internet, and will push the network technology curve far ahead of its state of the art.

What does that mean? For one thing, a sort of caste system will develop among the online access providers, direct-Internet providers, software manufacturers and others competing for Net users' business, with direct access to Internet and ease of use of currency. "There will be a class system among providers," said Jim Bergmann, marketing manager for Herndon, Va.-based Performance Systems International Inc., which everyone knows as PSI. "On the top tier will be Sprint, UUNET, PSINet, and ANS (recently bought by America Online), Netcom and so on," he said. Prodigy, first to market with Web access, and Compuserve ought to be factored in there as well, though Internet access is not their primary business yet.

The local Internet scene is, to say the least, unique, with a handful of Northern Virginia and Maryland companies growing faster than a speeding venture capitalist. Many have struck deals or developed networks with each other, but don't let public posturing fool you - in private, many of them like to say nasty things about each other -- in techno-speak that demands that consumers do their homework. Three companies are climbing to the top of the food chain locally, and are garnering more and more attention nationally.

Six-year-old PSI's founders put their business together with experience gleaned from academic and research-oriented protocols that never envisioned things such as the Web's jangling graphics. PSINet began with 40 customers and grew to 5,000 by the end of 1993. While doing that, it marketed hard, developed dial-up service and high-speed integrated services digital network connections, and leased lines to customers - while many providers could only manage one or two of those features. Some in the industry believed Microsoft went wrong when it backed UUNET, because of PSI's technology and because it's expected to go public soon, something the company won't discuss on the record but that everyone seems to know. PSI won't discuss its revenues -- that is, if callers can penetrate its daunting voice mail system - but it will say it has spent $10 million on asynchronous transfer mode technology for its network, cascade switches and multiple trunk lines. That's industry talk for bandwidth and speed. In fact, America Online was a PSINet customer for network access until 1991, when AOL switched to Sprint.

UUNET has an industry-seasoned executive, John Sidgmore, in the CEO's chair. He turned around one startup and sold it to infotech giant Computer Sciences Corp., and held senior management posts at GE Information Services, Rockwell International and Litton Industries. "A lot of things are changing as we speak," Sidgmore said in an interview. "Two years ago it was UUNET, PSI, the little guys. Now it's AOL, Microsoft, Prodigy, Sprint, MCI - these are the much more serious companies." Sidgmore had counted on his company hitting the $100 million annual revenues mark in 1997, but with Gates and company aboard, he thinks he can hit that number a year early. This year, he said, UUNET will log about $13 million in annual revenues.

PSI and UUNET's Northern Virginia neighbor America Online has culled a larger chunk of the headlines, with a successful public offering under its belt, $104.4 million in 1994 revenues and recent deals that include a $34 million barter in stock for Booklink Technologies Inc. and Navisoft Inc., both specialists in navigation software for the Internet. Shortly after, AOL announced the Advanced Network and Services deal, also for $34 million, making up the core of a small Internet access provider. And don't forget Washington, D.C.-based MCI, which has announced its own Internet push and is in the process of building the powerful replacement for Internet's research academic traffic.

And so, the future of mom-and-pop type Internet shops on the second tier becomes less clear. As resellers of access, they can't provide the beef of high-speed lines connected directly. They get taken advantage of by bigger guys claiming to "own their own networks," an assertion that rings false since the owners of the networks will remain telecom companies, unless Internet providers start laying their own lines. UUNET, for instance, subcontracted its network management to another company, and PSI has never let them forget it. Yet PSI, and Digital Express, for that matter, use Amtrak lines and other infrastructure for long-haul circuits. "Internet is an excuse to sell leased lines," said Doug Mohney, marketing director for Greenbelt, Md.-based Digital Express Group.

Digex, which has an Internet access agreement with this newspaper, is a cheerful example of how the small-time access business began, caught fire, and must find venture-capital gasoline to keep burning. And in this business, that means growth - not only in customers but in technology, in refining the faultless hookup, in laying direct line.

Digex counts Maryland, New Jersey, and the Metro area in its territory, and has connections to New York City, Philadelphia with more to come. The company started about five years ago as four telephones in its founder's basement. It grew to inhabit attic space above a small community movie theater and Chinese restaurant in Greenbelt, began signing on clients such as MTV veejay Adam Curry and the Federal Emergency Management Administration, and now is moving to cavernous warehouse-style digs near Laurel, in what used to be the National Rifle Association's direct-mail mill.

Digex won't discuss revenues, either, but has logged 10 to 20 percent growth each month for the last year, adding up to a "substantial fraction" of what UUNET made in '94, Mohney said. The move to Laurel will double its staff of 34 over the next eight months.

Digex, like Metro area counterparts CAIS, Clarknet and SURANet, faces competition from several directions - even from Sprint, which is developing the reputation for laying direct line for anyone who will write a check. "In two years, you'll be big, you'll be bought, or you'll be dead," Mohney said.

Moreover, in two years the Internet network landscape will start looking more like Metropolis than rolling farmlands. The National Science Foundation turns over its NSFNet backbone to the private sector - namely, MCI -- in April. "As the Internet breaks apart, interconnectivity is very important," Bergmann said - meaning providers must hook into community traffic hubs such as the Commercial Internet Exchange, which was founded by UUNET and PSI.

Then, of course, there's the software challenge from companies such as Netcom, which is capitalizing on the Web fervor, and even IBM. Its OS/2 Warp with one-button Internet access (provider not included) appears to be saving the operating system from demise, along with a clever television marketing pitch that includes a cloistered French nun "dying to surf the Net."

Yet Sidgmore, for one, thinks the Internet's shifting geography won't squeeze the little guys out: "There [will] be a number of opportunities for boutique providers," he said. "I think there is plenty of room for everyone."

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